How Bankruptcy Impacts Student Loans in Texas

 Posted on August 25, 2023 in Student Loans

Student loans are notoriously difficult to discharge in bankruptcy. The specific impact bankruptcy can have on student loan debt often depends on the loan type and bankruptcy chapter. Here is a more in-depth look at how different student loans are treated in bankruptcy cases. For more detailed information, contact a Texas bankruptcy attorney.

Federal Student Loan Dischargeability

Most federal student loans, including Stafford, PLUS, and Perkins loans, cannot be discharged through bankruptcy in Texas. These loans fall under the U.S. Bankruptcy Code's "undue hardship" provision. To prove undue hardship and attempt federal student loan discharge, you must file an adversarial proceeding in bankruptcy court against the lender and prove:

• You cannot maintain a basic living standard if forced to repay loans
• Circumstances causing hardship will persist for the majority of the loan term
• You made good-faith efforts to repay loans before bankruptcy

Few borrowers can meet this stringent test. Unless you have a severe disability, it is unlikely federal student loans will be discharged in a Texas bankruptcy case.

Private Student Loan Dischargeability

Private student loans from banks and lenders are treated as normal unsecured consumer debt in Texas bankruptcy cases. This makes private student loans fully dischargeable under Chapter 7 liquidation. The unsecured debts are wiped out along with other dischargeable debts like credit cards or medical bills.

Texas BAPCPA Exceptions

Under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), there are limited exceptions where Texas state student loans may be eligible for discharge if they have been in repayment for over seven years at the time of bankruptcy filing, regardless of loan type. An attorney can advise if your state loans may qualify.

Chapter 13 and Student Loans

In a Texas Chapter 13 bankruptcy, filing a three to five-year repayment plan temporarily halts student loan collections. But it does not provide discharge of remaining obligations. Once the Chapter 13 plan is complete, you are again responsible for full monthly payments and the balance persists.

The complexity around student loan discharge in bankruptcy makes consulting an attorney critical before any filing. They can help maximize dis-chargeability based on loan type and tailor the optimal bankruptcy strategy.

Contact a New Braunfels Bankruptcy Attorney

If you are struggling with student loan debt in addition to other financial obligations, speak to a Texas bankruptcy lawyer for advice. Do not struggle alone with overwhelming education debt. Get personalized legal guidance today. Call Law Offices of Chance M. McGhee at 210-342-3400 for a free consultation.